News

Court confirms that bonus clawback provisions are not a restraint of trade

In Steel v Spencer Road LLP [2023] EWHC 2492 (Ch), the High Court held that a  bonus clawback provision in an employment contract did not amount to a restraint of trade.

The Issues

Mr Steel worked for Omerta, a global executive search firm, and received a basic salary of £65,000 and an annual discretionary bonus. In January 2022, he received a bonus of £187,500.  In February 2022, Mr Steel resigned.  Mr Steel’s employment contract contained a bonus clawback provision which provided that a bonus must be repaid in full should he have left his job, been given, or gave, notice within three months of the bonus being paid. When Mr Steel handed in his notice, Omerta activated the clawback and asked him to repay the bonus.

Mr Steel refused to repay the bonus arguing that the bonus clawback provision amounted to an unreasonable restraint of trade in that it discouraged employees from leaving employment for a period of time after having received a bonus.  The Insolvency and Companies Court (ICC) dismissed Mr Steel's application on the basis that the provision was not a restraint of trade as it did not restrict him from working elsewhere. Mr Steel appealed to the High Court.

The High Court dismissed the appeal and held that the ICC was right to follow Tullett Prebon v BGC Brokers [2010] EWHC 484 (QB), which held that a contractual bonus clawback provision was not a restraint of trade.  Although a bonus or commission scheme conditional on the employee remaining in employment for a specified period of time operates as a disincentive to that employee resigning, it was held that does not make it a restraint of trade. 

Although the provision meant that Mr Steel would have had to remain employed for six months (including his notice period) after the payment of the bonus and he was also subject to post-termination restrictive covenants, these other contractual provisions had no bearing on the interpretation of the bonus clawback.

Summary

While there is nothing new arising from this case it is helpful in that it confirms the restraint of trade position on clawback of bonus payments which are conditional on the employee remaining employed for a specified period and confirms established precedent.

If you'd like assistance in relation to the issues raised please do contact Erica Simpson at esimpson@ortolan.com

 

Posted on 11/24/2023 by Ortolan

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